CASE The rise of a unicorn - Airbnb EXAMPLE Duncan Angwin on a website created by former flatmate and computer programmer, Nathan Blecharczyk. In the summer of 2008, Barack Obama was due to speak in Denver at the Democratic Party National Convention. Eighty thou- sand people were expected to attend and Joe and Brian airbnb thought there would be a shortage of hotel rooms. They rushed to complete their website in time and recorded 800 listings in one week. However, it did not make any money. To survive they had to make use of their entrepre- neurial skills, buying cereal in bulk and designing pack- Airbnb logo aging such as 'Obama's O's' and 'Cap'n Mccain' cereal; Sowce: Russell Hart/Alarry Images. jokey references to the two Presidential candidates of the year. However, they soon added a payment facility to A unicom is a mythical animal that has been described their website allowing them to charge up to 15 per cent since antiquity as a horse with a large pointed spiral hom. of the booking (the host pays 3 per cent and the traveller Legend has it unicorns are very rare and difficult to tame. between 6 and 12 per cent). By April 2009, they were It is a name that has been adopted by the US venture breaking even. capital industry to denote a start-up company whose val- uation exceeds $1bn (80.6bn, 60.75bn). Airbnb, founded Growth in 2007, was one of these rare and valuable unicoms, already valued at $25bn in 2015. How could this start-up Attracting funding for their start-up was not easy. Inves- become so successful, so fast? tors saw Gebbia and Cesky purely as designers, which did not fit the traditional start-up profile. Funders thought Origins there would not be much demand for listings that mostly advertised sleeping on airbeds. The original founders of Airbnb, Joe Gebbia and Brian Nonetheless, in 2009 Airbnb received its first funding Chesky, first met at Rhode Island School of Design. Five of $20,000 from angel investor, Paul Graham, co-founder years later, both aged 27, they were struggling to pay their of Y Combinator (a start-up mentoring programme), who rent when a design conference came to San Francisco. was impressed with their inventiveness and tenacity. The All the hotels were fully booked, so they set up a simple company was renamed Airbnb and it provided an app and website with pictures of their loft-turned-lodging space website that connects people seeking lodging with renters - complete with three air mattresses on the floor and who have listed their personal houses, apartments, guest the promise of a home-cooked breakfast in the morning. rooms on either platform. Further funding followed: in This site got them their first three paying guests at $80 November 2010 Airbnb raised an additional $7.2m. This each. It dawned on them this could be the start of some- allowed the company to expand to 8000 cities worldwide, thing big. They both wanted to be entrepreneurs and Brian to increase the number of employees to 500 and to move already had some experience having designed a cushion out of the founders' flat - where staff had been making for back sufferers and built a website.' Next day they cre- sales calls from the bathroom and holding conferences ated a website, www.airbedandbreakfast.com. in the kitchen - to offices in the design district of San They decided to target conferences and festivals Francisco. The early history of Airbnb is illustrated in across America, getting local people to list their rooms Figure 1.HOW AIRBNB STARTED BY ANNA VITAL Or How 3 Guys Went From Renting Air Mattresses To A 10 Billion Dollar Company 2007 two guys in they think They make 2 men 1 woman launched San Francisco do rent out 3 a simple webs le showed up, they thought roommate as a (a blog with mape) this could be SXSW . got can't pay paying $50 each co-founder two bookings rent airbedandby wakdast.com abig Idea to build the sie and same boodleact 2009 u u went realized were making $200 got $20,000 in door to-door in NYC Photos of places before the election and look photos Were not pretty a went for months first funding not growing for $40 each malong from Paul Graham's one first money 2014 week $301020 Enter No 2010-2011 made $900 a week were rejected raised $600.000 raised $72 million started to grow by a famous VC seed round then $1 12 million How Bark (Find Wibbgy drummer rents an entire house from sequoia tom many investors $10 BILLION and Ashion Kutcher VALUATION F41 Funders and Founders based on reports in Telegraph, WSJ. and The Atomic Figure 1 Airbnb early growth story Sowce: Funders and Founders, Inc., Image courtesy of Anna Vital. However, in 2010 Airbnb was experiencing sluggish competitor Crashpadder just in time for the 2012 Sum- listings in New York. Joe and Brian booked spaces with mer Olympics in London. Offices were opened in Paris, 24 hosts and flew out to try to understand the problem. Barcelona and Milan. Airbnb's growth was explosive with They soon realised hosts were doing a very poor job of a higher valuation than Hyatt and Wyndham hotel groups presenting their properties. They immediately rented a by 2014 and more guest nights booked than Hilton Hotels $5000 camera and took as many photos of New York (see Figure 2). By 2016 Airbnb was valued at $25bn - apartments as possible. Listings in the city suddenly dou- more than any other hotel group. The company justified its bled. From there on hosts could automatically schedule valuation by claiming that, when its price ($25bn) to sales a professional photographer. This was an immediate hit ratio of 27.8 (based on estimated sales of $900m for and by 2012 there were 20,000 freelance photographers 2015) is divided by its high growth rate of 113 per cent being employed by Airbnb around the world. The pho- per year, the resulting value for the group is broadly in line tos also built trust for guests as they verified addresses. with the sector. Airbnb forecasts $10bn of revenues by The company also introduced Airbnb Social Connections, 2020, with $3bn of profits before tax. which leverages users' social graphs via Facebook Con- Airbnb proved attractive to guests and hosts as its nect. This shows whether friends have stayed with the listings were far superior to others available at the time, host or are friends with the host and it allows guests to such as Craigslist - they were more personal, with bet- search for hosts based on other characteristics, like alma ter descriptions and nicer photos that made them more mater. Again this reassured potential guests. appealing for people searching for vacation rentals. The Further venture funding of $112m was received in July rooms provided by Airbnb were also cheaper than equiva- 2011. Airbnb expanded through acquisitions with a deal lent ones at hotels and had more of a personal flavour. For in Germany and the purchase of their largest UK-based instance, in a recent stay in Paris a user noted the host 2540 30 Millions of nights booked p.a. 20 - 10 - 2008 2009 2 2010 2011 2012 2013 2014 2015 2016 (est.) Figure 2 Guest nights booked had left a selection of food in the refrigerator, a bottle of culture. But he had a somewhat cynical view that it was wine on the counter for her guests and a welcoming note practically inevitable once a company gets to a certain suggesting good places nearby to eat out and convenience size to *** it up. shops. Staying in another person's apartment makes the visitor feel far more at home than an anonymous hotel Accordingly, the company began to manage its culture room. For many young guests and hosts, Airbnb fitted into more deliberately. For example, Joe Gebbia had become the contemporary sharing culture exemplified by Easy car concerned that as the company grew, it had become club, where users can rent their car to others, and Girl less open to dialogue. To encourage more discussion, he Meets Dress, that allows girls to borrow and lend their invented the notion of 'elephants, dead fish and vomit'. As dresses for special occasions. For hosts, rents provide a Gebbia explains: 'Elephants are the big things in the room source of income to help pay for soaring accommodation that nobody is talking about, dead fish are the things that costs in many major cities. happened a few years ago that people can't get over, and vomit is that sometimes people just need to get something off their mind and you need someone to just sit there and Managing growth listen'.* All three need to be aired. Airbnb also established Founder and CEO Brian Chesky penned a memo in 2013 a series of annual meetings called One Airbnb, bringing to his top management team, as follows: together employees (called 'Airfam') from all around the world to the San Francisco base for four-day conferences Hey team, at which everyone can meet the founders, discuss strat- Our next team meeting is dedicated to Core Values, egy and also talk about both their work roles and their which are essential to building our culture. It occurred hobbies. The company has 'ground control' staff in every to me that before this meeting, I should write you a short office in the world dedicated to making the company letter on why culture is so important to [co-founders] culture 'come alive', organising pop-up birthday celebra- Joe, Nate, and me. tions, anniversary parties or baby showers. The company is rigorous in its recruitment policy, committed to hiring . . . In 2012, we invited Peter Thiel [a major investor] 'missionaries, not mercenaries to our office. This was late last year, and we were in At the same time, founders Joe Gebbia, Brian Chesky the Berlin room showing him various metrics. Midway and Nathan Blecharczyk had begun to ask themselves through the conversation, I asked him what was the sin- again: What is our mission? What is the big idea that gle most important piece of advice he had for us. truly defines Airbnb?'. As they recalled in their own words: He replied, 'Don't f* * up the culture." 'It turns out the answer was right in front of us. For so long, people thought Airbnb was about renting houses. This wasn't what we were expecting from someone who But really, we're about home. You see, a house is just a just gave us $150m. I asked him to elaborate on this. space, but a home is where you belong. And what makes He said one of the reasons he invested in us was our this global community so special is that for the very first 26THE RISE OF A UNICORN - AIRBNB time, you can belong anywhere. That is the idea at the was brewing in the US from vacation rental site Home- core of our company.'s Away Inc. (owned by Expedia), Roomorama, HouseTrip, Flipkey and Travel Advisor holiday rentals. Indeed, web- Airbnb in 2016 sites have sprung up such as www.airbnbhell.com that list a string of internet accommodation providers. None- In 2016, Airbnb had over 1.5 million listings in 34,000 theless, at the time of writing Airbnb was rumoured to be cities in 192 countries, with 40 million total guests. Any- the hottest IPO (an initial public offering of its stock to one anywhere in the world can list spare space from a investors) tip for 2016. room to a tree house, from a castle to an island in Fiji, with prices ranging from $50 to $2000 per night. Airbnb References received 30 million page views per month. The headquar 1. Salter, J. (2012) 'Airbnb: The story behind the $1.3bn room-letting web- ters' walls were covered with world maps dotted with hun- site', The Telegraph, 7 September; Lee, A. [2013] Welcome to The Uni- com Club: learning from billion-dollar startups', TechCrunch, 2 November, dreds of coloured pins, charting world domination. Airbnb https:/techcrunch.com/2013/11/02/welcome-to-the- unicorn-club/ was so popular that one of their rooms was booked every 2. A ratio of price/sales to revenue growth rate gives Airbnb a figure of 24.6 against Marriott at 19.2, Wyndham at 34.1 and Expedia at 12.2 (Guest two seconds. post, "Why that crazy-high Airbnb valuation is fair, www.valuewalk.com, The company was now focused on the whole travel trip 1 January 2016). with an emphasis on delivering local experiences. This 3. https://medium.com/@bchesky/dont-fuck-up-the-culture- 597odegee9d 4)#.5wd5kwtom focus on hospitality was not just about where you stay, 4. B. Clune, 'How Airbnb Is building its culture through belonging', Culture but what you do- and whom you do it with - while you're Zine. there. To this end they introduced Airbnb Neighbourhoods 5. http:/blog.airbnb.com/belong anywhere.. and local lounges, partnering with local coffee shops that 6. Zacks.com, 'Investing in resting: Is Airbnb a top 2016 IPO candidate?; 11 December 2015. can offer free wifi, a comfortable setting and local guide- books. They also acquired a small start-up that connects guests with locals who can answer their questions. They also offer cleaning services. Questions Airbnb was providing a strong challenge to hotels with Sticking to the 35-word limit suggested by Collis prices 30-80 per cent lower than local operators. San and Rukstad in Section 1.2.3, what strategy Francisco hotels were having to slash prices to protect statement would you propose for Airbnb? their occupancy rates. Incumbents in the industry fought 2 Carry out a "three-horizons' analysis back by arguing Airbnb were dangerous and unsafe in Section 1.2.1) of Airbnb, in terms of both terms of health and safety and quality assurance as it was existing activities and possible future ones. How unregulated. Although one must have a permit to rent for might this analysis affect its future strategic under 30 days, San Francisco residents were still illegally direction? listing personal homes and apartments. Similar problems were being experienced in New York where an 'illegal hotel 3 Using the headings of environments, strategic law' was passed preventing people from subletting apart- capability, strategic purpose and culture seen in Section 1.3.1, identify key positioning issues for ments for less than 29 days. There was also a question Airbnb and consider their relative importance. mark over hosts not paying tax on earnings. During 2016, Airbnb redesigned its website and apps 4 Following on from the previous questions and with subtle animations and flashier imagery. This huge making use of Section 1.3.2, what alternative rebranding represented a transition from a hotel service to strategies do you see for Airbnb? a lifestyle brand. Airbnb wanted their logo to be seen on 5 Converting good strategic thinking into action a variety of products, houses and businesses, so people can be a challenge: examine how Airbnb has understood that owners supported their ideal and their achieved this by considering the elements seen brand. Airbnb's focus was now firmly on 'belonging'. This in Section 1.3.3? rebranding may not have been before time, as competition